Bring down the curtain on this Greek tragedy

Greece will default on its debts, leave the euro and return to its own national currency, the drachma. This is one of the certainties in an uncertain world.

The decision might be swift or it might be slow, but the question remains when, not whether. Sooner, of course, is always better than later when it comes to dealing with a crisis of any sort, but human nature is inclined towards procrastination.

It will not matter much which party or coalition is in power in Athens. The pressure from the Euro-authorities above will continue to be for more austerity measures while the pressure from below is to seek the opposite.

Guess where the votes lie.

Crisis: Whether Greece quitting the euro leads to economic Armageddon remains to be seen

This does not rule out the Athens government struggling on for some time as part of the euro. But this is not a long-term membership.

Whether Greece’s departure from the euro in due course leads to the sort of economic Armageddon which eurozone ministers seek to frighten us with remains to be seen. Of course, if the next on the list are Portugal, Ireland and, most ominously, Spain, then big problems lie ahead.

But we should think carefully about how seriously we take the talk about a debt crisis for commercial banks if Greek bonds ‘default’. Options range from a straight devaluation of the current bonds’ face value to postponing interest payments — which some want to pretend is less than a default.

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Who are these bankers who, we are told, still hold Greek bonds? They have been on notice about Athens’ hopeless position for at least a year, maybe two or three. Perhaps eurozone ministers want to frighten every potential participant in a Greek rescue into paying up.

Things appear rather different if we look hard at the non-commercial European Central Bank. It could well be in a bad way. The ECB is required to hold and deal in all the bonds issued by its 17 members.

Just think of that! Who would want to hold such a portfolio, with so many bonds at the tail end constantly scrutinised by the rating agents for a possible downgrade — though not below Greece’s, which is already one of the world’s lowest.

Fatally flawed: The eurozone's weakness has cast doubt on the European Union itself

If the ECB, in performance of its duty, has run up a horrifying list of losses in bonds, it will have to acknowledge this in due course. And its only option then will be to plead with its shareholders, ie the governments in the eurozone, to cough up and permit a recapitalisation.

It would be hard to think of a worse time to ask them for more money — most of them being engaged in operating the sort of austerity programmes the ECB preaches as essential to permit stability and growth.

If the Bank did have to go for a recapitalisation, the blow to its prestige would be enormous. And to the euro as well — and beyond that to the EU itself. You can see why EU leaders are panicking about the Greek crisis and what it might eventually do to the whole Brussels apparatus.

Maybe some states would not prove too enthusiastic about an ECB recapitalisation. The institution has hardly covered itself in glory. It should have spotted that Greece was unauditable for membership from the first, Portugal too.

What frightens the EU politicians the most, especially in Germany and France, is that the eurozone’s weakness casts such doubt on the Union itself. Some members question the value of membership — Britain, the Netherlands and Finland among the most sceptical.

The future of the Union has never looked so shaky. If there is a second bail-out package for Greece, it will result in increasing hostility from northern European taxpayers who resent having to contribute and resentment in the south that bigger members of the zone in the north can impose austerity measures on them. There is a real north-south divide.

Predictions: Experts at the Bank of England say the potential British losses of the Greek crisis could be £8bn

Some measure of the problem is provided by Raoul Ruparel of the think-tank Open Europe. Bail-outs are not free and always add to the problems of serial debtors.

As time passes, and with the Greek economy offering no growth, he calculates that the share of Greece’s debt underwritten by foreign taxpayers (via the EU, the ECB and the IMF) will go from a bad-enough 26 per cent to a demoralising 64 per cent in 2014.

In other words, not only is it obvious that Greece itself should pull out of the eurozone, whatever the momentary dislocations involved, it is very much in the interest of other members to oust Athens.

No country with a debt level like Greece's has ever avoided a default

No country with a debt level like Greece’s has ever avoided a default. New precedents are not contemplated now.

Britain’s own position within this complex web of debts and guarantees may yet be put to the test. How many ways can politicians suggest certainty but still promise nothing?

Listen to David Cameron, Chancellor George Osborne, Foreign Secretary William Hague and sundry other ministers who are playing their part in the Great Evasion. If demands arise for further contributions to EU/eurozone rescue plans will we refuse to contribute?

‘This should be left entirely to the eurozone countries’ . . . ‘We could not contemplate paying a penny more’ . . . ‘We ought not to be asked to provide any contribution’